Developments in and perspectives on Virginia fiduciary law.

July 31, 2016

Since the early twentieth century, the law in Virginia has been founded upon the general principle that, absent a contractual requirement to the contrary, either the employee or employer may terminate the employment relationship “at-will”. Inherent in this construct, however, has been a requirement to provide “reasonable notice” of termination. This requirement has appeared in case law dating back more than 100 years. Recently, the Virginia Supreme Court clarified the meaning of this “reasonable notice” requirement in the at-will employment context.

Over the course of many years, lawyers in the employment field came to construe the “reasonable notice” requirement as tied to a measure of time, imposing some obligation to provide prior or advance notice. For employees and employers, this begged the arguably salutary question: how much prior notice would qualify as reasonable before one could quit a job or let someone go? Commentators posited that what was reasonable notice for someone who had been on the job for 20 years might not meet the same prior notice analysis for a new hire. An undeclared consensus evolved that one or two weeks’ prior notice was akin to a safe harbor, a de minimis proxy for reasonableness. From the employer’s perspective, this would mean providing either some prior notice or its equivalent in pay—the latter to avoid the potential for discord, unauthorized disclosures of employer information, or outright sabotage by an unwanted employee’s continued presence on the job during the advance notice period.

In the recent Virginia case, when an employee of 17 years was terminated from her real estate services firm without any advance notice, she argued that the employer had breached an implied term of her at-will employment. The case was dismissed as a result of the employer’s demurrer, and the employee appealed. The Virginia Supreme Court agreed with the employer, noting that “reasonable notice” did not include a “temporal component,” as urged by the employee. Rather, reasonable notice legally means “effective notice that the employment relationship has ended.”

The consequences from this decision may be felt in small ways for years to come in Virginia. It may entail an end to employers paying employees for one or two weeks’ pay upon immediate separation from service. It also may leave some employers vulnerable, however, to even longstanding or mature at-will employees quitting inopportunely and, absent any perceived negative legal consequences, without any concern for an employer's immediate staffing needs. The case is Johnston v. William E. Wood & Associates, Inc. (Va. 2016).

December 29, 2015

The "Seven Deadly Sins" in estate planning appear in no particular order and are intended to be illustrative only. These sins do not involve drafting or scrivener’s errors. Rather, each shares an underlying root cause: collateral client objectives.

Collateral client objectives refers to client wishes unrelated to the orderly disposition of property after death. Such client objectives, however, may reflect a client’s deeper, more personal, and sometimes hidden motivations or wishes. Although such collateral client objectives can be understandable, they may also increase the risk of costly discord:

Naming two or more adult children together as joint fiduciaries to encourage them to reestablish or repair a compromised sibling relationship

Selecting an executor of a last will and testament or a trustee of a trust on the basis of not hurting someone's feelings (e.g., selecting one's eldest child as trustee because he or she is the oldest)

Naming a stepparent as long-term trustee for an adult stepchild (or an adult stepchild as long-term trustee of a stepparent)

Treating children differently because one of them has "already succeeded" in life

Forcing children to own real estate together

Naming one sibling as a long-term trustee for another sibling absent a disability

Mandating or effectively requiring the long-term retention and running of a family business despite a lack of demonstrated harmony, aligned interests, or management aptitude by a junior generation of intended primary beneficiaries

The nature of these variables, tethered to family dynamics of perceived position or desired control, may help explain their recurrence. Considering the full range of possibilities in estate and trust litigation, estate planning counsel, financial advisors and longtime family CPAs should carefully evaluate the dangers of what is famously known as a client's "Dead Hand": a client's after-death dictates governing the continued control over assets and the terms of their eventual disposition. Seen in this context, the Dead Hand is a common thread that runs through the fabric of the Seven Deadly Sins in estate planning and a strong indicator in assessing the risks of estate and trust litigation.

July 07, 2015

An adult child recently fought against the admission to probate of a copy of his biological father’s missing will. The adult child insisted that, without proof of what happened to the will, its copy could not be admitted to probate. Without proof of what happened to the lost will, the adult child argued, the lost will’s proponent could not overcome the legal presumption that the decedent must have intended to revoke the will. The trial court disagreed, admitting the copy of the missing original of the will to probate.

An appeal followed, challenging the trial court’s ruling. The Virginia Supreme Court upheld the trial court’s decision to recognize and admit to probate the copy of the lost will. Notably, in doing so, the Court clarified more than a century of case law. The Court held that the proponent of the lost will did not have to prove what actually became of the decedent’s will.

Although the Court recited the evidence in support of the trial court’s holding, it did not limit its ruling to the specific facts of the case presented. The Court did note, however, that the proponent of a lost will had to overcome the presumption of revocation that applied if the original will was in the testator’s custody. That is, the proponent of a lost will still had to prove that the testator “did not destroy the will with the intention of revoking it.” The proponent of the lost will in the case at issue had met that burden under the applicable “clear and convincing evidence” standard. The case is Edmonds v. Edmonds (Va. 2015).

November 13, 2014

A notion frequently presented by beneficiaries of a trust or an estate is that the trustee or executor is doing something unlawful if the beneficiaries are not treated “equally.” Although equality between or among beneficiaries appears to be a readily understandable concept, it is not the same as being entitled to receive an equal share of a trust or an estate. In the context of beneficiary disputes, the claim is not complicated to summarize: if the trustee (or executor) did not treat the beneficiaries equally, the fiduciary must have breached a duty. This argument has a surface appeal, but it is not necessarily consonant with the law.

Trustees and executors often face zero-sum situations, particularly without express instructions from the governing trust instrument or will. For example, two or more beneficiaries may wish to select the same tangible personal property. Alternatively, two or more beneficiaries may wish to receive the same real property. Some beneficiaries simply object to other beneficiaries receiving any specific property, or anything in-kind, even if such a transfer would not result in a shortfall of benefits or property distributable to the other beneficiaries.

There are guideposts in the law that may help pave the fiduciary's way out of such a quagmire. For instance, Virginia’s Trust Code, substantially modeled on the Uniform Trust Code that is now the law in a majority of states, focuses on the legal concept of impartiality. The concept of impartiality is different from the commonly understood notion of equality. Impartiality by a trustee focuses on equitable treatment: in investing, managing, and distributing the trust property. As a legal construct, impartiality is also qualified, and may require more than the rote exercise of the fiduciary's taking identical actions for each beneficiary.

The laws governing trusts and estates generally permit fiduciaries to reach an appropriate resolution even in the case of an apparent impasse. These legal guideposts are not always readily discernable, however, and distinctions can become easily blurred when arguments are made on the basis of surface appeal, including those asserting a lack of equality. A trustee or executor challenged by such arguments should either involve legal counsel early in the process of a trust's or estate's administration to prevent such claims from being litigated needlessly or seek counsel with relevant experience in the event that litigation arises.

June 17, 2014

An estate planning tool perhaps as yet unnoticed by estate and trust litigation counsel recently was enacted by the General Assembly. New to Virginia practice is the “transfer on death deed.” This form of conveyance permits the grantor of such a deed to designate a person to receive property in a transfer on death deed without creating any legal or equitable property rights in the designated beneficiary until the death of the transferor. The conveyance passes real property interests at the transferor’s death by operation of law, thus falling outside of the probate process and, generally, the provisions of a transferor’s lifetime trust. Although this planning device may make sense in limited settings, its piecemeal application in estate planning could give rise to a variety of unintended consequences in later litigation.

One such consequence is the passage of title to property without any form of accounting or oversight under the aegis of fiduciary duties applicable to trustees. Although creditor’s claims, statutory allowances, and estate administration expenses theoretically may be claimed against such property, the lifetime recordation of a transfer of death deed could cause real property quietly to slip forever into the hands of a designated beneficiary or alternate beneficiary. Under the Virginia Code, after a transfer on death deed is recorded, “it can be revoked only by an effective revocatory instrument recorded prior to the death of the transferor and may not be revoked by a revocatory act taken against or on the original or a copy of the recorded transfer on death deed.”

The statutory scheme contains a publicly available form for such deeds. A compelling feature of the form is a provision for alternate beneficiaries, generally absent in garden-variety survivorship deeds. The real distinction between transfer on death deeds and other deeds that convey current property interests, however, stems from the manner in which real property interests openly intended to be conveyed paradoxically may remain obscured.

Because there is no present transfer of ownership, and the real property in question remains owned by the transferor until death, family members may not notice or become aware of the transfer on death deed’s existence or even its prior recordation. The prior recordation of a transfer on death deed may affect later legal claims. Post-mortem claims alleging undue influence or constructive fraud, for example, may be barred even under a “discovery” statute of limitation due to the public nature of the earlier act of recording such a deed. The potential later inability to challenge or dispute a transfer on death deed’s past execution, in the face of its prior public recordation, is an uncertain feature of this new estate planning device.